The Income Tax Act, 1961 provides a structured mechanism for appeals to ensure that taxpayers or other affected individuals have an opportunity to contest orders passed by income tax authorities. Section 246A of the Act outlines the provisions under which an appeal can be made before the Commissioner of Income Tax (Appeals), or CIT(A). This section is particularly significant because it specifies both the types of orders that are appealable and the categories of persons who are eligible to file an appeal.
The right to appeal plays an essential role in upholding principles of natural justice and preventing arbitrary application of tax laws. When taxpayers are aggrieved by decisions such as assessment orders, penalties, or disallowances, the Act ensures they have the statutory right to approach an appellate authority for reconsideration.
Nature and Purpose of Section 246A
Section 246A is a cornerstone provision in the appellate structure of the Income Tax Act. It specifically mentions the orders against which an appeal lies to the Commissioner (Appeals). These orders include, among others, assessment orders, penalty orders, orders relating to tax deduction at source (TDS), and intimation of adjustments made under Section 143(1). The primary aim of this section is to provide relief to taxpayers by allowing them to seek redressal at the initial stage of grievance, without immediately resorting to litigation in higher courts.
This statutory right is not restricted only to individual taxpayers but extends to various categories of persons defined under the Act, including firms, companies, associations of persons, and others who may be affected by the decisions of the assessing officer.
Definition and Role of Assessee under the Income Tax Act
To understand who can file an appeal under Section 246A, it is crucial to examine the term assessee as defined in Section 2(7) of the Income Tax Act. An assessee refers to a person by whom any tax or any other sum of money is payable under the Act. However, the scope of this term is much wider than it appears at first glance.
An assessee may include:
- A person against whom any proceedings under the Act have been initiated
- A person deemed to be an assessee under any provision of the Act
- A person deemed to be an assessee in default under the Act
This inclusive definition ensures that not only the taxpayer but also individuals who have been assigned certain tax-related responsibilities or liabilities by law are covered within the ambit of the term assessee. This, in turn, makes them eligible to file an appeal under Section 246A.
Broad Meaning of Person Under the Act
The term person is also defined broadly under Section 2(31) of the Income Tax Act. It includes various categories such as:
- An individual
- A Hindu Undivided Family (HUF)
- A company
- A firm
- An association of persons (AOP) or a body of individuals (BOI)
- A local authority
- Every artificial juridical person not falling within any of the above
By including such a wide variety of entities, the Act ensures that all types of persons who may be subject to assessment, taxation, or penalty have access to the appellate mechanism. This also means that any of these persons can approach the appellate authority if they are aggrieved by an order of the assessing officer or any lower income tax authority.
Types of Orders Appealable under Section 246A
Section 246A contains a long list of specific orders against which an appeal can be filed. Some of the commonly appealed orders include:
- An order of assessment passed under Section 143(3) or 144
- An intimation under Section 143(1) where adjustments have been made against the interest of the taxpayer
- An order imposing penalties under various sections
- An order of rectification under Section 154 that adversely affects the taxpayer
- An order passed under Section 201 holding a person to be in default for failure to deduct or pay TDS
This list is not exhaustive, and the section is designed in a manner that facilitates the inclusion of many different types of orders that may cause hardship or legal harm to an assessee. The ability to file an appeal allows such persons to contest the legal and factual basis of the order.
Representative Assessee and Their Appeal Rights
The concept of a representative assessee is governed by Sections 160 to 167 of the Income Tax Act. A representative assessee is a person who is not directly earning the income but is responsible for managing the income of another person or entity. Such representatives are considered assessees under the Act and are liable to file returns and pay taxes on behalf of the actual income earner.
Examples include:
- An agent of a non-resident
- A guardian managing the income of a minor or a person with mental disabilities
- A trustee managing a trust
- A court-appointed administrator or executor of an estate
Since these persons are legally recognized as assessees, they have the right to file an appeal under Section 246A if they are aggrieved by an order that pertains to the income or tax liability they are managing. The law empowers these representatives to safeguard the interests of those whom they represent.
Deemed Assessee and Their Legal Standing
A deemed assessee is someone who is considered to be an assessee under specific provisions of the Income Tax Act, even though the income may not belong to them directly. For example, when a company agrees to pay the tax liability of a foreign consultant or technical expert under a contractual agreement, the company may be treated as a deemed assessee for the purpose of fulfilling tax obligations.
In such scenarios, if the tax department passes an order holding the company liable for tax deduction or default, the company may be entitled to file an appeal under Section 246A. The legal standing of such entities as deemed assessees depends on the nature of their legal obligation under the Act, not merely on financial arrangements.
Assessee in Default under the Act
A person is deemed to be an assessee in default under Section 201 of the Act if they fail to deduct tax at source or fail to deposit the deducted amount with the government. Common examples include:
- Employers not deducting tax on salary payments
- Payers of rent or professional fees not deducting TDS
- Companies or banks not depositing TDS on time
When such failures are identified, the assessing officer may issue an order treating the person as an assessee in default. Since such an order imposes a legal and financial liability, the person affected has a right to file an appeal under Section 246A.
This right is essential for ensuring that the person held to be in default has an opportunity to challenge the correctness of the order, present evidence, and claim any legitimate exemptions or reliefs.
Role of Deductors and Collectors of Tax
Tax deductors and tax collectors also fall within the scope of persons eligible to file an appeal under the Income Tax Act. When a person deducts tax at source under Chapter XVII-B or collects tax at source under Chapter XVII-BB and is later held to be in default for any lapse, they are provided with the right to file an appeal under Section 246A.
Examples include:
- Banks deducting TDS on interest payments
- E-commerce operators deducting tax on sales or service commissions
- Buyers collecting tax under Section 206C on purchase of goods
Any adverse order passed against these persons, such as penalty, interest, or demand for unpaid TDS/TCS, is appealable. This appeal serves as a safeguard for these intermediaries to ensure they are not penalized for genuine errors or technical lapses beyond their control.
Situations Where Third Parties Cannot File Appeals
It is also important to recognize the limitations of the right to appeal. Not every person who suffers financial loss due to a tax-related order is automatically entitled to file an appeal. Courts have held that private arrangements, such as a person voluntarily bearing another’s tax liability, do not grant the right to file an appeal unless the person is deemed to be an assessee or otherwise recognized by the Act.
Similarly, a business partner or stakeholder who is not directly assessed under a specific order may not have the legal standing to challenge it, even if it affects the business indirectly. The right to appeal is based on legal responsibility under the Act, not on private or commercial agreements.
Importance of Having a Legal Identity under the Act
Eligibility to file an appeal is intricately linked to the legal identity of the person under the Income Tax Act. If a person does not fall within the statutory definition of an assessee or a deemed assessee or is not covered by any specific provision that makes them liable for tax, they do not have standing to file an appeal.
This restriction is meant to ensure that the appellate authorities are not burdened with appeals from unrelated parties and that the remedy is available only to those directly or legally affected by an order passed under the Act.
Eligible Categories
To understand who can file an appeal under Section 246A, the following categories of persons may be considered eligible:
- Taxpayers against whom an assessment or penalty order has been passed
- Persons responsible for tax deduction or tax collection
- Representative assessees managing income on behalf of others
- Persons deemed to be assessees or deemed to be in default
- Companies or institutions legally liable to pay or manage taxes under a statutory or fiduciary relationship
Each of these categories is defined either directly or indirectly in the Act, and their appeal rights flow from their legal status and obligations.
Understanding the Concept of Representative Assessee
The Income Tax Act, 1961 lays down a comprehensive mechanism for assessing income, levying tax, and providing remedies to aggrieved parties. Among such provisions is the concept of a representative assessee, defined under Sections 160 to 167.
In cases where the person earning the income cannot be assessed directly, the tax department assesses another person deemed to be representing the original taxpayer. This representative also holds the right to challenge the tax-related orders issued in such capacity.
Types of Representative Assessees
According to Section 160(1), a representative assessee can be:
- An agent of a non-resident
- A guardian or manager of a minor or a person with mental disability
- A trustee, receiver, or administrator appointed by court
- A trustee of a trust, whether formed by written instrument or otherwise
These representatives are taxed not for their own income, but for the income they manage or represent. Consequently, if an order is passed assessing such income or imposing any tax liability, the representative assessee has a statutory right to file an appeal under Section 246A.
Legal Capacity and Right to Appeal
In scenarios involving minor children or mentally incapacitated persons, guardians often face assessment orders in the representative capacity. The right to appeal in such cases arises from the obligation to comply with tax laws on behalf of the minor or the mentally incapacitated individual.
Similarly, in the case of non-residents, the income earned or received in India may be taxed in the hands of the agent or representative. These agents are treated as representative assessees and are responsible for discharging the tax liabilities. They are legally entitled to appeal against any order that results in liability, incorrect assessment, or penalty.
Trusts and Estate Management
When it comes to trusts or estates, the trustees or executors act as the representative assessees. These individuals are not the owners of the income but merely managers or custodians. Since the tax is assessed in their hands, they can contest any adverse orders by filing an appeal.
In cases of discretionary trusts where beneficiaries are not specifically identified or their shares are indeterminate, trustees are assessed at the maximum marginal rate. This may lead to higher tax burdens, prompting the trustees to file appeals under Section 246A, especially when the assessment appears to be excessive or procedurally flawed.
Persons Deemed to Be in Default
A significant category of individuals who can appeal includes those deemed to be “assessees in default.” The Income Tax Act uses this term to describe persons who have failed to fulfill certain tax obligations, and as a result, are considered defaulters under law.
Legal Meaning of Assessee in Default
The concept of “assessee in default” is used in various sections of the Act. It broadly applies in situations where a person:
- Fails to deduct tax at source
- Deducts tax but does not deposit it with the government
- Does not pay the tax demanded within the stipulated time
- Does not comply with other specific obligations like paying advance tax or self-assessment tax
When such a person is held liable and an order is passed under relevant sections like 201(1) or 206C(6A), he or she gains the right to appeal under Section 246A.
Examples of Default Situations
Common instances of being held in default include:
- An employer failing to deduct TDS from salary payments
- A company neglecting to pay Dividend Distribution Tax under Section 115-O
- A mutual fund missing tax obligations under Section 115R
- A seller not collecting TCS under Section 206C
- A taxpayer not paying advance tax under Section 210
The Act provides that in such situations, once a person is declared in default and an order is passed, the right to appeal arises to allow the person to contest the liability, interest, or penalty imposed.
Scope of Appeal
While the right to appeal is granted, it must be exercised in relation to the order or action taken against the person in default. For instance, if a tax deduction was short and the deductor is penalised, the appeal can be made on the grounds of calculation error, technical mistake, or reasonable cause.
However, the appeal does not cover general grievances or policy disagreements. It is limited to legal and procedural infirmities in the specific case at hand.
Role of Deductors and Collectors in Filing Appeals
Deductors and collectors are key players in the Indian taxation system. Their role in tax compliance extends beyond their personal income, as they are responsible for ensuring that tax is deducted or collected at source and deposited with the government. Their obligations arise under Chapter XVII of the Act, which includes Sections 192 to 206CA.
Legal Standing to Appeal
Section 246A explicitly includes deductors and collectors within its purview, granting them the right to appeal against orders that impact their duties. These orders may relate to:
- TDS/TCS defaults
- Disallowance of expenditure due to non-deduction or short deduction
- Interest under Sections 201(1A) or 206C(7)
- Penalty for non-filing of TDS returns
- Late filing fees under Section 234E
As these decisions affect their financial obligations and compliance records, the law allows them to challenge such orders through the appellate mechanism.
Scenarios Triggering Appeals by Deductors
Common scenarios that lead to deductors appealing include:
- Disagreement over whether a payment was liable for TDS
- Conflict on the rate at which TDS should have been deducted
- Situations where the deductee paid tax directly, but the deductor was still held liable
- Technical or clerical errors that caused demand notices
The Income Tax Department has, over time, recognised the complexity in such cases and permits deductors to present their case before the Commissioner (Appeals).
Aggrieved Assessee – A Closer Look
Only a person genuinely aggrieved by an income tax order can file an appeal. This principle forms the basis of appellate proceedings and ensures that the right to appeal is not misused.
What Constitutes Grievance
Grievance must involve some form of legal injury or denial of right. It is not sufficient for a person to be merely unhappy or dissatisfied. For instance:
- If a taxpayer is taxed on income that is exempt, he or she is aggrieved
- If a trust is taxed at the maximum marginal rate without legal justification, the trustee is aggrieved
- If penalty is imposed without due cause, the assessee has grievance
Thus, the presence of genuine prejudice due to an order is essential.
Direct Impact Required
The person filing the appeal must be directly affected by the order. A creditor or a third party without a direct stake cannot claim to be aggrieved. The law confines the right to appeal to those who either bear the liability or are denied a benefit they were entitled to.
Court Views on Grievance
Judicial interpretations have consistently upheld this narrow view. Courts have ruled that the right to appeal is a substantive legal right and not merely a procedural option. It must be grounded in actual prejudice caused by the order being challenged.
Appeal by Successors and Representatives
Appeals are not always filed by the person originally assessed. There are situations where a legal successor or representative continues or initiates the appeal process.
Legal Representatives of Deceased Assessee
When an assessee dies, the legal heirs or representatives step into their shoes. Under Section 159(1), they become responsible for complying with tax obligations. Consequently, they also gain the right to file or continue appeals on behalf of the deceased.
This ensures that the legal process does not lapse merely due to the demise of the assessee. It promotes continuity and upholds the right to seek redressal through appellate forums.
Insolvency and Liquidation Cases
If an individual is declared insolvent or a company is wound up, the appointed receiver, administrator, or liquidator becomes the rightful person to act on behalf of the assessee. These persons can exercise the right to appeal, challenge assessments, and defend the interests of the estate or company assets.
The law ensures that taxation does not become arbitrary during transitions such as death, insolvency, or liquidation. It preserves the due process through appropriate representation.
Appeals by Third Parties Under Limited Circumstances
The right to appeal under the Income Tax Act generally lies with the assessee. However, in exceptional cases, third parties who are affected directly by an income tax order may be granted the right to file an appeal. These cases arise from unique legal and procedural situations where the third party is treated as having standing.
Intermediaries and Agents
Intermediaries such as agents or business facilitators who act on behalf of a taxpayer may find themselves subject to income tax demands, particularly in relation to foreign transactions. When they are held accountable for tax deducted or income received on behalf of another person, they have the legal authority to challenge such determinations if the order adversely affects them.
For example, a non-resident’s Indian agent may be held liable under Sections 160 and 163 for tax dues arising from the non-resident’s Indian income. If such an agent disagrees with the determination of tax or the classification of income, they may appeal under Section 246A since they bear the responsibility for compliance.
Trustees and Managers of Charitable Trusts
Trustees of public charitable or religious trusts who manage tax-exempt entities may appeal against assessment orders that either deny exemptions or treat them as non-compliant. Even though they may not directly own the income, they are duty-bound to ensure that the income of the trust is protected and properly utilized.
An order disallowing exemption under Section 11 or Section 12 directly affects the charitable institution’s financial standing and compliance record. Hence, trustees as third parties in such fiduciary capacities can file appeals on behalf of the institution they represent.
Contractual Representatives and Consignees
In sectors like shipping, import-export, and foreign trade, it is common for foreign entities to operate in India through local representatives. If a tax liability is imposed on these representatives due to misclassification of income, improper application of Double Taxation Avoidance Agreements (DTAA), or misunderstanding of source rules, they may appeal as affected third parties.
Consignees or commission agents may also be held liable under certain provisions if found to be facilitators of income flow. Their appeal rights stem from the principle of natural justice, as any party adversely affected by a binding order should be given a right to contest it.
Right of Appeal by Government Departments and Public Authorities
While most appeals are filed by taxpayers, government departments and statutory bodies occasionally act in the capacity of assessees. They may face assessments, disallowances, or demands that require appellate intervention.
Government as Assessee
Various departments or instrumentalities of government may earn income from activities such as leasing land, providing consultancy services, or managing public utilities. Even though they are part of the government, they are not always exempt from taxation. Income earned by them in a commercial capacity may be subject to assessment, especially if they are not notified as exempt entities under Section 10.
If such income is assessed or taxed at a higher rate, the concerned department may file an appeal under Section 246A, just like any other assessee. For instance, a municipal corporation running a water treatment plant and earning user charges may challenge a denial of exemption.
Statutory Boards and Corporations
Many statutory authorities such as electricity boards, housing development authorities, and port trusts operate in a quasi-commercial manner. These entities are subject to audit, assessment, and compliance like private entities.
They may appeal against:
- Denial of depreciation or capital expenditure claims
- Disallowance of exemption under Section 10(23C) or Section 11
- Penalty for delayed return filing or incorrect disclosures
- Non-acceptance of revised returns or audit reports
Their appeals are treated like those of regular assessees, and they are bound by the same procedural requirements.
Appeals by Companies, LLPs, and Firms
Corporate entities, including companies, Limited Liability Partnerships (LLPs), and partnership firms, form a substantial portion of appellants under the Income Tax Act. Their right to appeal stems from both business exigencies and the complexity of tax laws applicable to them.
Appeal Against Assessment and Reassessment Orders
Companies and firms frequently challenge orders issued under Section 143(3) (scrutiny assessment) or Section 147 (income escaping assessment). Grounds for appeal often include:
- Disallowance of business expenditure
- Transfer pricing adjustments
- Incorrect classification of income
- Alleged concealment of income
- Disputed valuation of inventory or assets
The intricate nature of company accounts and multiple income streams makes these assessments prone to error, increasing the reliance on appellate remedies.
Appeal on TDS/TCS Related Orders
Companies are large-scale deductors of tax under multiple sections, including 194C (contractors), 194J (professional fees), and 194H (commission). Assessment orders passed for defaults or non-compliance under TDS/TCS provisions, including penalties and interest, are commonly challenged.
As these liabilities can run into substantial amounts, especially when compounded over several quarters, companies use the appellate forum to seek relief or correct procedural errors made during assessment.
Filing Procedure and Representation
Corporate entities file appeals through their authorized representatives, who could be chartered accountants, tax practitioners, or legal counsel. The authority to file appeal must be supported by board resolutions or partnership declarations, ensuring procedural compliance.
They are also required to submit digital forms (Form 35) through their registered income tax e-filing accounts. Documentation, legal grounds, and facts are scrutinized at the appellate level before hearings are scheduled.
Institutional and Educational Entities
Educational institutions, hospitals, and non-profit entities registered under Section 12AB or approved under Section 10(23C) may also file appeals when faced with rejection of exemptions or adverse orders. These institutions are governed by strict norms, and minor deviations can lead to taxability of their entire income.
Rejection of Registration or Approval
Appeals often arise in the context of:
- Rejection of registration under Section 12AB or cancellation of existing registration
- Denial of approval under Section 10(23C)
- Refusal to allow accumulation of income under Section 11(2)
- Alleged violation of Section 13 conditions (benefit to interested persons)
These determinations can have serious consequences for the tax-exempt status of institutions. Hence, the law allows them to appeal against such decisions before the Commissioner (Appeals).
Procedural Rights and Considerations
Institutions filing appeals must substantiate their charitable nature, application of income, and compliance with statutory norms. They must present documentary evidence, audited financials, and compliance reports during the hearing process.
While these institutions enjoy tax privileges, appellate bodies examine their claims rigorously to prevent misuse of exemption provisions.
Appeal by Partners, Members, and Shareholders
In specific situations, partners of a firm or members of a co-operative society may be affected by an order issued to the entity they are associated with. In such cases, they may be allowed to file individual appeals, particularly if the order leads to direct tax liability or benefit denial for them personally.
Distinct Appeal Rights in Case of Share of Income
Partners often file appeals when their share of profit from the firm is altered due to disallowances or recharacterisation of firm’s income. Since their tax liability is impacted at the individual level, they have standing to contest such orders.
Similarly, members of a co-operative society or shareholders in a closely held company may appeal when dividend declarations, tax credits, or assessments lead to personal liability or denial of benefits. However, these appeals are distinct from those filed by the entity itself and must relate to issues that directly impact the partner or member.
Appeals by Liquidators and Receivers
Where businesses are under liquidation or receivership, tax authorities may pass orders determining liabilities on remaining assets. In such cases, liquidators, official receivers, or bankruptcy professionals are permitted to file appeals on behalf of the dissolved or defunct entity.
Nature of Appellate Rights in Liquidation
The liquidation process often involves claims and counterclaims on behalf of creditors and the government. If an assessment is made after liquidation proceedings have begun, the liquidator has the right and obligation to contest tax demands to preserve the value of remaining assets.
These appeals are often complex and involve coordination between tax authorities, insolvency professionals, and courts overseeing liquidation or bankruptcy.
Filing Appeals Through Authorized Representatives
Regardless of the nature or category of the assessee, appeals under Section 246A are generally filed through an authorized representative. The Income Tax Act permits advocates, chartered accountants, cost accountants, and enrolled tax practitioners to represent appellants before the Commissioner (Appeals).
Who Can Be an Authorized Representative
As per Section 288, the following can act as authorized representatives:
- A legal practitioner entitled to practice in civil courts
- A chartered accountant holding a valid certificate
- A cost accountant or company secretary with tax practice
- An employee regularly employed by the assessee
- Any person with special qualifications approved by CBDT
The authorized representative plays a vital role in drafting the grounds of appeal, presenting arguments, and appearing for hearings. Their competence and preparation often determine the outcome of appeals.
Documentation and Procedural Compliance
The appeal must be filed in prescribed Form 35, along with:
- Copy of the order appealed against
- Statement of facts
- Grounds of appeal
- Power of attorney or authorization letter
- Proof of tax paid, if applicable
Appeals must be filed within 30 days from the date of service of the order. However, if there is reasonable cause for delay, the Commissioner (Appeals) may condone the delay.
Conclusion
The right to appeal under Section 246A of the Income Tax Act plays a vital role in upholding the principles of natural justice and ensuring fair treatment of taxpayers. This statutory remedy empowers various classes of persons, including assessees, deemed assessees, deductors, collectors, and legal representatives, to challenge decisions they believe are erroneous or unjust. By clearly defining who may be considered an aggrieved party and under what circumstances an appeal can be initiated, the law strikes a balance between the authority of the income tax department and the rights of the taxpayer.
The law acknowledges that the burden of taxation can sometimes fall on individuals indirectly, as in the case of representative assessees or legal heirs. Accordingly, it extends the right of appeal to such parties, provided there is a legitimate interest or direct consequence from the tax authority’s actions. Procedural mechanisms, such as online registration for legal heirs and guidelines for representative assessees, reflect the evolving compliance environment while maintaining accessibility for genuine appellants.
Judicial precedents have reinforced that the right to appeal must be based on a real and legal grievance, not merely dissatisfaction. The courts have also emphasized that the identity of the appellant must be closely linked to the burden or denial created by the order in question.
In a system where tax laws can be complex and administrative decisions have substantial financial implications, the appeal process is a necessary safeguard. It ensures accountability in tax administration and provides a structured forum for redressal. Understanding who is entitled to file an appeal, and the manner in which this right must be exercised, is essential for taxpayers, professionals, and stakeholders alike. This clarity fosters confidence in the tax regime and strengthens the framework of equitable tax governance in India.